Private Employment Has Recouped Only Three-Eighths of Its Recent Loss
By Robert Higgs • Sunday February 19, 2012 8:45 PM PDT • 15 Comments
As the most widely reported rate of unemployment (U-3) has fallen in recent months, people with a political agenda served by painting a rosy picture of the recovery have made considerable noise about this decrease. Their political opponents have responded that one reason for the decline is that the labor force has fallen as more people have given up looking for work, some of them going into retirement sooner than they would have if the labor market had been more robust.
The best way to avoid the parsing and cherry-picking that plague such debates is to look not at unemployment, but at employment. After all, it’s employment that contributes to the production of goods and services and generates earnings for the job holders. Employment is less subject to interpretive ambiguity than unemployment is.
The most recently reported data on private nonfarm employment, for January 2012, show that employment has indeed continued its recovery. Since reaching its current-recession trough about two years ago, it has increased by about 3 million persons. Before starting a celebration, however, we should recognize that private nonfarm employment is still about 5 million persons less than it was at its pre-recession peak in 2008.
Moreover, such private employment is currently more than a million persons less than it was in December 2000, more than eleven years ago, on the eve of the dot-com bust. So, at this point, we have suffered more than the proverbial “lost decade” in the private labor market—the one in which employees are hired to produce goods and services that consumers and investors have demonstrated they actually value (or for which producers are convinced that such demand will be forthcoming).
To be sure, labor productivity has increased during this period, yet the likelihood is slight that sustained economic growth can take place in the future without long-term growth in private employment. A very large recession-related loss of private employment remains to be recouped, however, before we can even begin to think about the long-term growth of employment. The situation has improved somewhat in the past two years, no doubt, yet the labor market has a long way to go—it has about 5/8 of its recent loss to make up—merely to get back to its pre-recession peak.
Addendum I: Some recent survey evidence on why small businesses are not hiring:
Although such evidence must always be interpreted with extreme care, giving due attention to how the questions are framed, what the sampling design is, and so forth, it seems clear that uncertainties related to the future costs of Obamacare and other regulations are a significant factor in deterring hiring. Note, too, that when businesses are not hiring because they do not foresee sufficient demand to justify expanding their payroll, this reason may also reflect indirectly the effect of regime uncertainty, which may depress demands by the surveyed small businesses’ potential customers.
Addendum II: U.S. population grew by 9.7 percent between 2000 and 2010. In recent decades the annual rate of growth has averaged approximately 1 percent per year.
Tags: Economics, Employment, Labor, Unemployment 
And, I would assume there are more folks available to be employed now than 10 years ago because of a 10% increase in population.
richard | Feb 20, 2012 | Reply
Why would the present administration worry about the unemployed? As long as they continue to extend their unemployment benefits, the administration can count on votes from a good number of that group of unemployed people. The unemployed become beholding to the people extending their benefits. Just another way to strengthen the welfare/nanny-state model Obama wants to create.
Ralph Cummings | Feb 20, 2012 | Reply
In health care hiring has occurred because of two factors. One is demographic pressure from the increased utilization of an aging population. The other is because of re-structuring in anticipation of changes brought about by past and anticipated legislation and regulation. In other words, the second factor is there almost entirely because of rent-seeking. It is a mini-boom somewhat analogous to the Y2K bubble in industries that depended on information technology. I mention this because health care presently represents about 17% of GDP and is anticipated to rise to 20%. Much of the growth in one of our largest economic sectors is totally artificial. I cannot say that this is being duplicated elsewhere, but if it is, we are not actually looking at an improving economy, but an illusion of one.
teapartydoc | Feb 21, 2012 | Reply
Shifting the unemployed to the disability and welfare roles means they are no longer counted as part of the labor force. This lowers the U-3 unemployment rate, the only one Obama and his media pals care to talk about.
It creates a double bang for the welfare buck as far as Obama is concerned by hiding the true state of the labor market and creating more Democrat voters.
Robbing Peter with a job to give money to unemployed Paul pretty much assures the vote of Paul. At some point Peter is going to peter out.
TeeJaw | Feb 21, 2012 | Reply
No, the problem is that while population increases, the question really is what proportion of that population is actually in the workforce. In general, you have the natural ebb and flow of youngsters heading into the workforce, while the old retire. The problem with that proportion right now is that the baby boomer generation is starting to retire, and that generation had less children than their parents’ generation. Thus, it’s possible that we could see an increase in population, while at the same time see a decrease in the workforce population. Having more kids right now won’t help, either; there’s approximately a 20-year lag between changes in population growth and how that affects the number of persons available to the workforce.
Tilghman Lesher | Feb 21, 2012 | Reply
I would like to see such a graph plotted as a function of job aged population, so that population growth is taken into account...
D | Feb 21, 2012 | Reply
Not me, Richard. I want Obama gone as soon as possible and I’m 24 months unemployed using the system. I’d rather have a real job thanks much than all this government hassle and control.
Bryan | Feb 21, 2012 | Reply
Acording to the graph, it looks like the low point was reached in 2010, and now there is some improvement, but its pretty slow. It looks like at our present growth rate we wont get back to pre recession levels for about 3 yrs.
richard40 | Feb 22, 2012 | Reply
In discussing the possibility of investments in aquaculture with some large equity investors, we all agreed that with another 3 billion people adding to the world population and another 2 billion getting richer and wanting more meat, world wide aquaculture production will continue to increase at about 10%/yr. Aquatic animals don’t waste energy standing up or keeping warm, which means an inherently better FCR (food conversion efficiency — kg of feed / kg of production) than land animals (about 1/3 the feed per kg of meat relative to pigs and chickens).
However, when we got down to practicalities about opportunities in the US, especially with marine animals (shellfish, finfish, etc.) in So. California, we ended up rejecting most technologically and economically viable approaches for regulatory reasons. Basically, you can’t get permits for anything offshore or build anything onshore that requires a saltwater intake and discharge.
In California, we have a major “Tragedy of the Anti-commons” problem where every “stakeholder”, bureaucrat or interest group has effective veto power.
All the jobs associated with a multi-billion dollar offshore aquaculture industry in So. California cannot exist because of regulatory veto power. Instead, the jobs are created south of the border. Then we wonder why we are not creating jobs!
Dallas Weaver | Feb 25, 2012 | Reply
Commenter ‘teapartydoc’ touches on an important aspect of employment numbers that warrants more analysis. It is not sufficient to cite job creation as either in the ‘public sector’ or in the ‘private sector’. The private sector should be further divided into ‘free enterprises’ and ‘government-induced enterprises’, with many businesses providing aspects of both. The health-care sector, as mentioned, is likely the largest component of the latter, but certainly not the only one. Any business which receives direct or indirect support from taxpayers owes a portion of its employment levels to the same. Bailouts in the automotive and financial sectors; rebates and subsidies in the energy and agricultural sectors; tax incentives and loan guarantees in the housing and education sectors. I don’t know if the data exists, but I’d be stunned if truly free enterprises have added any employment in recent years.
JDV | Feb 28, 2012 | Reply